• Still BUY, with new MYR1.12 TP from MYR1.15, 56% upside, c.3% FY25F (Mar) yield. Despite a strong QoQ recovery, TASCO’s 1HFY25 earnings fell short due to weaker-than-expected freight forwarding contributions. Nonetheless, we anticipate a stronger 2H, fuelled by a favourable freight market, volume recovery, and contributions from new warehouses. Its valuation remains attractive for a leading integrated logistics player with diverse segments and growth potential.

• Results review. 2QFY25 revenue and earnings were at MYR295.7m (+18% QoQ; 8% YoY) and MYR13.6m (+20% QoQ; -14% YoY), bringing 1HFY25 core earnings to MYR24.9m (-17% YoY) – below expectations at 35% and 33% of our and consensus’ full-year estimates. The deviation was mainly due to weaker-than-expected contribution from the freight forwarding segment. Note that we adjusted our core PATAMI for both the write-off on old office demolition and FX loss on balance sheet items.

• International business solutions (IBS). The segment’s 2QFY25 PBT jumped 107% QoQ (+73% YoY) to MYR5.8m, primarily due to higher contribution from air freight (AFF) and ocean freight forwarding (OFF) segments. AFF and OFF segments’ PBT jumped 108% and 137% QoQ, thanks to higher revised selling prices charged amidst elevated freight rates. As a result, the IBS segment’s 1HFY25 PBT rose 15% YoY.

• Domestic business solutions (DBS). TASCO’s 2QFY25 PBT for the segment was MYR13.1m (+13% QoQ; -19% YoY). QoQ increase was driven by higher contribution from contract logistics (CL), which was up 30%. While the main contributor within CL, ie warehousing, recorded a slight 1% drop, customs clearance and haulage PBT skyrocketed 136% and 493% QoQ, fuelled by higher delivery of containers from automotive and E&E customers.

• Better 2H ahead. RHB Economics expects Malaysia’s economy to remain resilient in 2H24, driven by robust trade, manufacturing, and steady domestic demand from rising consumer and investment spending. We expect 2HFY25 to make up the bulk of full-year earnings due to seasonal factors, elevated freight forwarding rates, and the new warehouses. Both AFF and OFF segments will continue to post stronger earnings YoY in the coming quarters in the midst of favourable freight market on top of the upcoming peak season. Additionally, we anticipate higher contributions from the new warehouses after the delay in cargo movements as well as contributions from a new major automotive player. On the contrary, the minimum wage hike may elevate its cost structure come 2025 but will be cushioned by cost-pass through exercise via re-negotiation.

• Earnings revision. Post results, we cut FY25F earnings by 12% mainly due to downward revision of our margin assumptions for the forwarding segment. We keep our BUY call with a new TP of MYR1.12, pegged to an unchanged 12x CY25F P/E. A 2% ESG premium is baked into our TP given TASCO’s 3.1 score vs the 3.0 country median. Key risks include loss of key customers and a decline in operating margins.

Source: RHB Securities Research - 30 Oct 2024